\section{Standardization Concepts}
\label{sec:standardization}

We introduce general standardization concepts primarily to provide a common language for discussing the most important standardization aspects of our field of research. Our research question emphasizes the possibility of conflicting interests regarding standards in Symbian, and so this section reveals some of the main effects of standards that possibly have an influence on our hypothesis.


\subsection{Lock-in}
\label{subsec:lockin}

Standards can yield many different market conditions; one such phenomenon is 'lock-in'. According to Stango it describes \textit{``a situation in which economic agents' equilibrium decisions regarding standards adoption yield lower social welfare than an alternative.''} \citep[p. 4]{STANGO} This is a very abstract definition and it can be more concretely described as one being stuck in a certain situation typically because of high dependence on another part. This often entails high costs in switching from an inferior locked-in standard (or technology) to another more beneficial standard, yielding lower social welfare \citep[p. 104-5]{SHAPIRO}. \bigskip

\noindent Varian and Shapiro outlines how to use lock-in as a part of business strategy:

\begin{quote}
\textit{``This is one of the most common and important patterns of lock-in: after the initial purchase is made, the customer must buy follow-on products that work with the durable equipment.''} \\ \citep[p. 118]{SHAPIRO}
\end{quote}

\noindent After purchasing durable equipment the switching costs get even higher and the power of lock-in increases. An important aspect of hardware lock-in is that it will decrease over time because rapid technological advance will result in costs of switching to superior hardware. This tendency can be prevented if the customer 
\begin{quote}
\textit{``has multiple pieces of similar equipment and enjoys efficiencies from having all or most of its equipment come from the same vendor. In this case, even when one machine is fully depreciated, the customer still bears large switching costs because of the other complementary equipment.''} \citep[p. 119]{SHAPIRO} \end{quote}\bigskip

\noindent In short, there are many advantages for vendors in promoting lock-in by increasing switching costs. But lock-in is not limited to occur in customer-vendor relationships. Vendors can also be locked-in to inferior standards and inexpedient partnerships, where then become too dependent on certain suppliers and are constrained by contractual matters \citep[p. 140]{SHAPIRO}. \bigskip

\noindent Stango relates lock-in to the term of 'Path Dependence', which basically is a historical reasoning of the phenomenon:

\begin{quote}

\textit{``... later adopters' decisions depend strongly on the decisions of previous adopters. In this situation, it is possible that early adopters choose the ``inefficient'' standard. An inefficient standard is one such that at some point in the adoption process, a different prior adoption path would have yielded greater total benefits to all adopters.''} \citep[p. 5]{STANGO}

\end{quote}

% Idea: The customers of Symbian were not properly lock-in to Symbian and so the switching costs is so low that competitive companies easily could steal their customers. Lock-in can be used as a strategy and the fragmentation of Symbian might have hindered such a strategy. Maybe the partners was not properly lock-in to Symbian - they could just leave it!

%``One of the worst outcomes for consumers is to buy into a standard that is widely expected to be open, only to find it "hijacked" later, after they are collectively locked in.'' \citep[p. 231]{SHAPIRO} Maybe what happened was that the Symbian partner were locked-in instead of the customers.

\subsection{Network Effects}
\label{subsec:networkeffects}
The relation of standards with network effect seems significant. Swann explains that standards play an essential role in ensuring compatibility in information and communication technologies. Such compatibility standards can actually serve to increase the network effect.\citep[p. 14]{SWANN}\bigskip

\noindent In the telecommunication industry, a large installed base of users can increase the value of a given product, and so the larger the installed base gets, the more value will be added. This is referred to as network effects or network externalities. This fact is described by Stango:

\begin{quote}

\textit{``If no consumers have fax machines, then no one consumer will want to adopt the first fax machine, because a fax machine has no stand-alone value if it can not communicate with other machines.''} \citep[p. 5]{STANGO}

\end{quote}

\noindent The same applies of course to the network created by mobile handsets. In broader terms, network effects arise when \textit{``one market participant affects others without compensation being paid.''} \citep[p. 183]{SHAPIRO} One of the consequences is that the collective switching costs of a very interdependent network will be much higher than the sum of the switching costs \citep[p. 185]{SHAPIRO}

Stango distinguishes between direct and indirect network effects. In his terms the above example is a direct network effect, where \textit{``a common standard allows communication with more users, which is valuable.''} \citep[p. 3]{STANGO} Indirect network effects happen when \textit{``adoption itself does not confer benefits on other users of the system.''} \citep[p. 3]{STANGO} \bigskip

\noindent As mentioned in section \ref{sec:focus}, one of the advantages of forming a consortium is to put together existing installed bases of customers and thereby expanding the network. This will increase the rate of value added to each product, which accelerates along with the increasing network size. \bigskip

\noindent Some theorists describe network effects as 'market failures'. We will only point out what Swann is saying about market failures and how he relates it to network effects. He describes it as 
\begin{quote}
\textit{``the idea that while a perfectly competitive market could under come conditions deliver an optimum organisation of economic activities, some economic phenomena may cause the actual outcome in markets to deviate from this optimum.''} \citep[p. 29]{SWANN} 
\end{quote}
This basically means that everything which is not naturally regulated by competitive forces, whether good or bad in texture, goes under the concept of market failure. Network effects can be classified as a market failure because \textit{``certain activities look privately unprofitable when they are in fact socially desirable. In this case market fails because it prevents some 'right' activities from taking place.''} \citep[p. 31]{SHAPIRO}

%Use Farrell and Saloner to explain installed base and excess inertia. This should be done in the analysis.
\subsubsection{Positive Feedback}
Its very important to have the knowledge of positive feedback to understand the economics of information technology. According to Varian and Shapiro:
\begin{quote}

 \textit{''Positive feedback makes the strong get stronger and the weak get weaker, leading to extreme outcomes.''}\citep[p. 175]{SHAPIRO} 
 
 
\end{quote}
As described by Varian and Shapiro, when the bigger gets bigger then there is a monopoly situation in the market. They also further describe 
\begin{quote}
\textit{``when two or more firms compete for a market where there is strong positive feedback, only one may emerge as the winner. Economists say that such market is tippy, meaning that it can tip in favor of one player or another. It is unlikely that all will survive.'' } \citep[p. 176]{SHAPIRO} 
\end{quote}
The positive side of positive feedback can be seen as the stronger getting more stronger while the weaker getting more weak. The company at a strong position in the market influenced by positive feedback can have the chance of winning  the market and creating a de-facto standard. Wintel can be a good example.


\subsubsection{Negative Feedback}
Negative feedback acts opposite to the positive feedback. In the market with negative feedback effect \textit{``the strong get weaker and the weak get stronger, pushing both toward a happy medium.''}\citep[p. 176]{SHAPIRO}. There is a industrial oligopoly situation in the market. The authors describe that the market will find a balanced equilibrium rather than heading towards the extreme a single winner when the market is influenced by negative feedback.\citep[p. 176]{SHAPIRO}  


\subsection{Taxonomy of Standards}
\label{subsec:taxonomy}

There are many different types of standards and we will briefly mention some of them and go more into depth with compatibility standards. We will primarily use Ken Krechmer's definitions of the taxonomies of standards (\citep{KRECHMER1} \& \citep{KRECHMER2}). \bigskip

\begin{description}

\item[Unit and Reference Standards:] This type of standards have always be{\-}en a part of society. They exist to enable a common language and understanding of the surrounding environment. For example the numbering system is a unit and reference standard \citep[p. 3]{KRECHMER1}

\item[Similarity Standards:] Krechmer points out how similarity standards have been introduced in the emergence of the industrial age \citep[p. 2]{KRECHMER1}. \textit{``While unit standards (e.g., gallon) may define the units to measure the carrying capacity of a barrel, similarity standards define how similar in construction one barrel is to the next.''} \citep[p. 3]{KRECHMER1} Similarity standards enable the comparison of objects and thereby they create a basis for minimum quality standards.

\item[Compatibility Standards:] This type of standards have been emerging in the information age and they are still an inherent factor in ICT industries \citep[p. 2]{KRECHMER1} Krechmer emphasizes that \textit{``[c]ompati{\-}bility describes a relationship between two or more dissimilar entities.''} \citep[p. 4]{KRECHMER1} In ICT compatibility standards often covering different systems are interfacing to each other in terms of code, radio waves, electricity voltage, internet protocols, etc. \citep[p. 6]{KRECHMER2}. Compatibility standards work as bridges between various technologies and devices. According to Varian and Shapiro, compatibility standard considerations can expand positive network externalities and thereby make the network larger and compatibility can ``open up'' the standard (or technology) and reduce the possibility of customers getting locked-in \citep[pp. 229-230]{SHAPIRO}.

\end{description}

\subsection{IPR and Patents}
\label{subsec:ipr}

%How IPR and patents can help of hinder innovation

When talking about standards it is imperative to include a discussion of how intellectual property knowledge and patents influence standardization and innovation. First we will present what Stango calls 'Sponsored' and 'Unsponsored' standards which gives us a basic idea of the correlation. \bigskip

\noindent Sponsored standards are a conception of all standards which come with paten{\-}ted technologies. This means that the technology \textit{``can be used only by the holder(s) of property rights to the standard.''} \citep[p. 3]{STANGO} In contrary, unsponsored standards can be used by anyone and they are often seen in compatibility standards. In a few lines Stango describes how the market behaves and which forces make the market settle on a certain kind of standard:

\begin{quote}

\textit{``With unsponsored standards, demand-side decisions by consu{\-}mers are the sole driver of adoption for new standards. This implies that consumer expectations and their ability to coordinate with one another are key. With sponsored technologies, adoption depends not only on demand-side behavior but on the strategic behavior of firms owning standards. Because sponsors of new standards have a profit motive in spurring adoption, they can use a variety of price and non-price mechanisms to influence consumers' adoption decisions.''} \citep[p. 4]{STANGO}

\end{quote}

\noindent According to Krechmer patenting has been a good thing regarding similarity standards because they \textit{``reward the inventors and bring their inventions to the market more rapidly,''} \citep[p. 51]{KRECHMER} but in the case of patenting compatibility standards (interface), problems can arise:

\begin{quote}

\textit{``In most cases interfaces are created by agreement rather than invention, so patents that favor one party to the agreement over another only provide an incentive to disagree.''} \citep[p. 51]{KRECHMER}

\end{quote}

\noindent This disagreement will in many cases be a path to destruction of innovation. He says that \textit{``the problem stems from patents being applied to interfaces that are created by agreement.''} \citep{KRECHMER} \bigskip

\noindent As said in section \ref{sec:focus} Updegrove describes how problems arise when consortia are relying upon a technology, which is patented by one of their shareholders. This will lead to a promotion of self-interests within the consortium and this will jeopardize the collective goal of the shareholders. Furthermore he states that \textit{``to focus too closely on individual self-interest is likely to lead to the creation of products that customers ignore.''} \citep[p. 144]{UPDEGROVE} \bigskip

\noindent Krechmer describes how patents can be used to create what he calls 'technical lock-in'. This \textit{``may be achieved by control of a necessary technical element.''} \citep[p. 6]{KRECHMER2} He gives a concrete example of this:

\begin{quote}

\textit{``Patents may cause technical lock-in, which is an acceptable result of a successful patent. And technical lock-in may be achieved using a proprietary compatible interface, which may be less desirable to society, as examples from Microsoft (operating system application programming interfaces) or IBM (Systems Network Architecture, SNA) suggest.''} \citep[p. 6]{KRECHMER2}

\end{quote}
